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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BBB issuer rating on Helgeland Kraft AS (Helgeland Kraft) and revised the Outlook to Negative from Stable. Concurrently, Scope has affirmed the senior unsecured debt rating at BBB and the short-term debt rating at S-2.

The Negative Outlook reflects the downward revision of Helgeland Kraft’s financial risk profile and the risk that credit metrics could be sustainedly weaker in the next few years, as exemplified by leverage of above 5x as measured by Scope-adjusted debt/EBITDA*.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

The issuer rating continues to reflect the standalone credit assessment of BBB- and a one-notch uplift for the utility’s status as a government-related entity.

Business risk profile: BBB (unchanged). The business risk profile reflects the company’s diversified exposure to non-correlated utility segments, highlighted by operations in power distribution, cost-efficient and environmentally friendly hydropower generation (positive ESG factor) and electricity retail. Scope expects power distribution to remain the largest exposure, contributing almost 50% to recurring EBITDA.

The diversified business mix, combined with the high share of regulated activities, stabilises performance and strengthens the business risk profile. Scope further recognises the competitive hydropower generation portfolio, benefitting from a supportive merit order position, hydro reservoirs and a clean carbon footprint.

On the other hand, Helgeland Kraft faces several business risks. Hydropower generation performance is linked to achievable power prices, which can fluctuate significantly from year to year due to industry-inherent volatility, adversely affecting cash flow and credit metrics when prices are low. The company is vulnerable to event risks (e.g. related to accidents, regulatory changes or weather) given: i) its comparatively small scale; ii) its limited geographical diversification, operating in only one service territory (NO4 price area) in northern Norway; and iii) its dependency on the largest power plants, with the three largest accounting for more than 60% of generation volumes. The comparatively small scale of operations also reduces the company’s overall market impact compared to larger domestic and European utility peers, especially when considered at a national or international level.

Furthermore, merchant risk in power generation is being amplified by market conditions in northern Norway. Strong hydrology and mild weather have led to an unusually large energy surplus, while grid bottlenecks to other regional markets are limiting the transfer of electricty out of northern Norway. These factors have led to a sudden deterioration of achievable power prices. Scope notes that the year-to-date market price in NO4 is below Helgeland Kraft’s break-even price for its hydropower generation, which will significantly impact 2025 results. In response to the market challenges, the company has adopted a hedging strategy to increase earnings visibility for some power generation volumes to 1-2 years ahead, which could have a stabilising effect from 2026–2027.

The issuer’s good profitability and efficiency continue to mitigate the aforementioned business risks. Although profitability metrics will be hindered by low power prices in 2025, Scope expects the EBITDA margin and return on capital employed to subsequently recover, driven by a normalisation of hydrological conditions.

Financial risk profile: BB (revised from BB+). The downward revision of Helgeland Kraft’s financial risk profile is driven by the weakening of cash flow generation and credit metrics, potentially for an extended period.

Leverage as measured by debt/EBITDA (preliminary figures) weakened to 4.9x at YE 2024, from 3.3x at YE 2023, mainly due to lower EBITDA amid exceptionally low power prices in the second half of the year. Similarly, interest cover dropped to 4.5x in 2024 from 7.9x in 2023.

EBITDA is likely to decline to around NOK 250m in 2025, before increasing to around NOK 450m in 2026 and around NOK 550m in 2027, mainly driven by an expected recovery in hydropower generation, alongside a gradual normalisation of the NO4 power price towards NOK 300/MWh. Scope expects gross capex to increase to NOK 400m-500m yearly in 2025-2027, from NOK 349m in 2024, driven by the grid business, which is expected to result in negative free operating cash flow (FOCF) and contribute to an increase in debt from NOK 2,237m at YE 2024 to around NOK 2,900m at YE 2027.

While Scope projects leverage and interest cover to improve in 2026-2027, the agency is not fully confident that the EBITDA recovery will be enough to offset the potential increase of debt. Scope therefore sees risks for a prolonged weakening of credit metrics amid current capex plans, as exemplified by leverage forecast at above 5x in 2027 and interest cover below 4x. However, this will remain largely dependent on achievable power prices in the NO4 price zone.

Liquidity: adequate (unchanged). Scope’s assessment is based on its expectation that liquidity can cover short-term debt maturities and expected negative FOCF. The cash buffer, comprising available cash and cash equivalents of NOK 515m at YE 2024, is forecast to be maintained at around this level going forward while the agency anticipates that expected negative FOCF and debt refinancing will be covered with new debt. The company has already issued a new bond in January 2025, with proceeds of NOK 500m and a six-year maturity.

At YE 2024, Helgeland Kraft’s debt comprised NOK 2,300m of bonds, supplemented with NOK 347m of loans from the Nordic Investment Bank, and a shareholder loan of NOK 16m, with balanced debt maturities at between NOK 345m and 360m per annum in 2025-2027. The company has repaid a NOK 300m bond maturing in February 2025, and remaining debt maturities in 2025 are therefore limited.

The company’s debt has two financial covenants. The covenants require a consolidated equity ratio above 30% and net-interest-bearing debt to the three-year average EBITDA to not exceed 5.5x. The latter only applies to Nordic Investment Bank loans and could come under pressure in the next years. While this creates a financing risk, Scope believes the company is likely to find a solution with Nordic Investment Bank if needed.

Supplementary rating drivers: +1 notch (unchanged). Scope defines Helgeland Kraft as a government-related entity and applies a bottom-up rating approach in accordance with its Government Related Entities Rating Methodology. The one-notch uplift to Helgeland Kraft’s standalone credit assessment is based on its public ownership by Norwegian municipalities, its relevance for the owners’ policy objectives, and its owners’ anticipated capacity and willingness to provide financial support if needed.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Negative Outlook reflects the risk that leverage could remain above 5.0x due to adversely low power prices in northern Norway amid exceptionally strong hydrological conditions, the uncertainty about the timeliness and extent of recovery, and the continued high investment expected in the grid business. These factors are expected to result in increasing debt in the next few years, which can lead to a sustainedly weaker leverage even if operating results recover to historical levels. However, moderating power prices can quickly impact credit metrics, which could result in the rating being stabilised at its current level.

The upside scenario for the ratings and Outlook is:

1. Debt/EBITDA remaining below 5.0x over the medium term, which can result in an Outlook revision to Stable

The downside scenarios for the ratings and Outlook are (individually):

1. Further weakening financial risk profile, with debt/EBITDA not remaining below 5.0x over the medium term
    
2. Loss of government-related entity status (remote scenario)

Debt ratings

The senior unsecured debt rating has been affirmed at BBB, in line with the issuer rating.

The S-2 short-term debt rating has been affirmed, reflecting the BBB/Negative issuer rating, adequate short-term debt coverage and adequate access to bank and capital markets financing.

Environmental, social and governance (ESG) factors

Helgeland Kraft’s business model is centred on sustainable energy, mainly hydropower generation, and power distribution that supports the energy transition. The company’s hydropower generation is a credit-positive ESG factor due to its low operating costs and clean carbon footprint, which results in low transition risks. Additionally, the company’s large-scale hydropower generation must be at least two-thirds publicly owned, underpinning its continued government-related entity status.

All rating actions and rated entities

Helgeland Kraft AS

Issuer rating: BBB/Negative, Outlook change

Short-term debt rating: S-2, affirmation

Senior unsecured debt rating: BBB, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (European Utilities Rating Methodology, 17 June 2025; General Corporate Rating Methodology, 14 February 2025; Government Related Entities Rating Methodology, 10 December 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Per Haakestad, Specialist
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 4 August 2022. The Credit Ratings/Outlook were last updated on 25 June 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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